Chip manufacturer Intel purchased security software maker McAfee for $US7.68 billion in one of the biggest tech deals for some time, both companies announced overnight.
But analysts and investors weren’t so impressed, with Intel shares falling over 3% to $US18.9 amid warnings the chip manufacturer paid too much for a company that offers little integration with its core business.
Intel says the deal will allow it to sell security software with chips being developed for smartphones, televisions and cars. The company also believes it will be able to gain some new revenue streams in enterprise markets, after a relatively poor two years for the tech industry.
“In the past, energy-efficient performance and connectivity have defined computing requirements. Looking forward, security will join those as a third pillar of what people demand,” Intel chief executive Paul Otellini said in a statement.
“With the rapid expansion of growth across a vast array of internet-connected devices, more and more of the elements of our lives have moved online.”
But while analysts say the move outside of the already-saturated PC market follows similar purchases from IBM, HP and Microsoft, there are some concerns. Firstly, Intel has little experience in security software and as Ovum points out, there is a potential danger of a monopoly occurring.
“We can assume that Intel’s objective is to incorporate more security features into its chips. For users, and for businesses, this will be welcome, but clearly there is a risk of monopolistic concerns damaging the market.”
“The situation brings echoes of what we saw in 2002 when Microsoft, in conjunction with Intel, proposed a secure computing platform under the auspices of the Trusted Computing Platform Alliance, and Microsoft’s Palladium project.”
Standard & Poor’s equities analyst Clyde Montevirgin was also critical of the deal, saying in a statement that, “we see only modest near-term strategic benefits of better integrating security and its core CPU businesses. We also think the deal is expensive”.
However, Ovum also points out the move will gain Intel some new revenue streams given McAfee dabbles in governance and systems management “in the world’s largest organisations”, giving it some more enterprise exposure.
Intel has suffered since the financial crisis began. Not only has it entered into a long and costly legal battle with rival manufacturer AMD, chip sales have plummeted as PC sales declined during 2009.
However, the company’s most recent quarterly results showed revenue was up $US2.3 billion, with net income also up by $US2 billion to $US2.3 billion, as more customers start buying PCs and laptops.
In a statement, McAfee said the deal will allow the company’s product to reach a wider user-base, saying, “the cyber threat landscape has changed dramatically, with millions of new threats appearing every month”.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
